One of Britain's leading consultancy firms is urging George Osborne to soften his austerity programme, warning that Britain's private sector is not strong enough to soak up bigger than expected job losses from the public sector.

PricewaterhouseCoopers (PwC) said the chancellor should "fine tune" his plans by deferring cuts in spending on infrastructure and by providing tax breaks for small and medium-sized enterprises (SMEs) to hire workers.

In a report to coincide with the first anniversary of the coalition's October 2010 spending review, PwC expressed concern about the deteriorating state of the economy since the start of 2011. The study said that until the first quarter of this year, more jobs had been created in the private sector than lost in the public sector, but that since the Treasury's spending cuts began to bite in April the position had been reversed.

Since the end of 2009, PwC said 290,000 jobs had gone in the public sector, almost 75% of the losses that the independent Office for Budget Responsibility predicted last November for the period up until 2015. Local government had been particularly hard hit, the report said, with 145,000 job losses in the year to the second quarter of 2011. Central government, including the NHS, lost 66,000 employees, and public corporations (such as the BBC and the Post Office) around 29,000.

PwC said 600,000 private sector jobs had been created since December 2009 but added that these had been disproportionately in part-time employment. Hours worked per employee was at its lowest level since 1995, while in the second quarter of 2011 (the latest period for which data is available) the 41,000 jobs created in the private sector fell well short of the 111,000 job losses in the public sector.

John Hawksworth, chief economist at PwC, said: "Given the more difficult than expected global economic environment over the past year, questions remain around whether the phasing of the government's fiscal plans should be fine-tuned while sticking to the same medium-term target of eliminating the structural current budget deficit by 2015/16.

"Some deferral of capital spending cuts may be the most attractive option since this can be justified as supporting long-term infrastructure needs while not directly threatening medium-term targets for the structural current budget deficit, which excludes net capital spending.

"Some targeted temporary tax cuts might also be considered, for example as regards national insurance contributions for SMEs, but any such tax cuts seem unlikely to be implemented on a large scale given the fiscal position. Some form of credit easing for SMEs also seems a laudable objective in principle, although further details are awaited as to how exactly this will work in practice."